RMB9,370 million of securities rated
Hong Kong, January 12, 2021 -- Moody's Investors Service has assigned definitive ratings to the Class
A and Class B Notes issued by Rongteng 2021-1 Retail Auto Loan
Securitization, a domestic transaction backed by a pool of auto
loans originated by SAIC-GMAC Automotive Finance Company Limited
(SAIC-GMAC) in China.
The complete rating action is as follows:
Issuer: Rongteng 2021-1 Retail Auto Loan Securitization
....RMB8,610M Class A Notes, Assigned
Aa1 (sf)
....RMB760M Class B Notes, Assigned
Aa1 (sf)
The RMB630M Subordinated Notes are not rated by Moody's.
RATINGS RATIONALE
When assigning the ratings, Moody's analysis focused, among
other factors, on (1) the characteristics of the securitized pool;
(2) the macroeconomic environment; (3) the lack of historical performance
data during the economically distressed period; (4) the parental
support available to the servicer; (5) the financial disruption risk
in the transaction, which refer to the risk of issuer's cash flow
disruption in case of a servicer termination event, and the mitigants
to support timely payments on the Class A and Class B Notes (collectively,
"the senior notes"); (6) the protection provided by credit enhancement
against defaults and arrears in the securitized pool; and (7) the
legal and structural integrity of the transaction.
The rating assigned to Class A Notes is constrained by the financial disruption
risk in this transaction which involves the assessment of (1) the likelihood
that the servicer will be able to continue operations during the life
of the transaction, (2) the ease of transfer of responsibilities
from the servicer in case it needs to be replaced, and (3) the effectiveness
of the mitigants, if any, to mitigate the risk of cash flow
disruption caused by the financial distress of the servicer. Moody's
views the financial disruption risk for this transaction as not fully
mitigated because the servicer, SAIC-GMAC, is an unrated
joint-venture and therewas no reserve fund at closing. Upon
a servicer termination event, cash flow disruption could result
in insufficient collections to pay interest on the senior notes,
which would trigger an event of default. Due to the limited financial
disruption risk, the maximum achievable rating for Class A Notes
is at Aa1 (sf).
Moody's considered, among other things, the transaction's
key strengths:
(1) Diversified collateral pool composition: The cut-off
portfolio consists of 187,678 obligors' loans with a good level
of geographic diversification across 31 regions in China. Typically,
a more granular pool exhibits less volatile performance.
(2) Favorable pool characteristics: The pool only includes loans
to purchase new vehicles. 100% of the payments are made
via direct debit. All loans are amortizing and have a weighted
average LTV of 68.03% at origination. The collateral
pool has a short weighted average remaining tenor of 27.39 months.
(3) Full turbo structure: Subordination of the senior notes increases
over time after closing. The issuer will apply the loan interest
and principal repayments in accordance with its priority of payment,
including repaying the Class A Notes on each note's payment date until
they are repaid in full, and then the remaining collection will
be used to repay Class B Notes until they are repaid in full.
(4) The originator's experience in the China auto finance sector:
The originator was the first auto finance company established in the China,
and has refined its underwriting process over time. The underwriting
system is independent from its sales function and dealers. The
originator uses a comprehensive set of data to assess a borrower's creditworthiness.
SAIC-GMAC uses its own credit scoring system to assign a credit
score to each borrower. Borrowers with score below a floor level
are automatically rejected. The originator has a network of dealers
which it also has wholesale business relationships with, this allows
closer monitoring of the dealers and may allow more consistent origination
and quality control.
Moody's has also considered the following weaknesses and mitigants:
(1) Economic uncertainty: The coronavirus outbreak, the government
measures put in place to contain it, and the weak global economic
outlook continue to disrupt economies and credit markets across sectors
and regions. Our analysis has considered the effect on the performance
of consumer assets from the current weak Chinese economic activity and
a gradual recovery for the coming months. Although an economic
recovery is underway, it is tenuous and its continuation will be
closely tied to containment of the virus. As a result, the
degree of uncertainty around our forecasts is unusually high.
We regard the coronavirus outbreak as a social risk under our ESG framework,
given the substantial implications for public health and safety.
(2) Untested back-up servicing arrangement: No back-up
servicing arrangement was set up at closing. Servicing of the transaction
may be subject to disruption if the originator/servicer fails to perform
when needed. Any disruption may result in a significant impact
because the transaction has more than 187,000 obligors located in
various parts of China. There is no precedent in China of actual
servicing transfers to date, although potential replacement servicers
exist because there are several captive finance originators with obligors
across the country. Moody's considers the high likelihood of parental
support for the servicer and the short weighted average life of the rated
notes as key mitigants to this weakness. Although there is no explicit
guarantee from the parent companies, the servicer is majority owned
by SAIC Motor Corporation Limited (SAIC) and is strategically important
to the auto business of its parents, SAIC and General Motors Company
(GM, Baa3, negative).
(3) Limited liquidity buffer: No liquidity reserve was funded at
closing and the only sources of liquidity are principal to pay interest
mechanism and excess spread. Moody's considered the following mitigants
in determining the operational and liquidity risks in this transaction,
which refer to operational disruptions, including non-timely
payments on the notes due to non-performance by the transaction
parties: (a) the strong parental support available to the servicer;
(b) the credit quality of the servicer's parents, SAIC and GM;
(c) the short tenor of this transaction; and (d) the trustee will
notify borrowers within 5 days of a servicer termination event.
In the event that the servicer's rating by domestic credit agencies falls
below certain levels, the excess spread will be used to fund various
reserve accounts. Moody's has not relied, in its rating analysis,
on triggers based on ratings assigned by other rating agencies.
(4) Commingling risk with the servicer's fund: The servicer will
auto-debit the borrowers' bank accounts on each of the loans' monthly
installment dates, and commingle such collections with its own funds.
This amount will be subject to commingling risk until the servicer transfers
such collections to the issuer's account (7th business day of each month)
prior to the immediate notes' payment date (26th calendar day of each
month). As a mitigant to commingling risk, the servicer will
(a) immediately upon a rating downgrade (by domestic rating agencies),
reduce the commingling period by transferring collections from the servicer
account to the trust account within four business days upon receipt of
funds by the servicer; (b) maintain various reserve funds using excess
spread trapping upon a rating downgrade (by domestic rating agencies);
and (c) put in place a servicing transfer plan within 90 days of a domestic
ratings downgrade. Moody's has considered the credit quality of
the servicer and the payment mechanism in this transaction and incorporated
one and a half months of cash commingling exposure in its modeling.
Moody's has not relied -- in its rating analysis --
on triggers based on ratings assigned by other rating agencies.
(5) Lack of historical performance data during economically stressed period:
The historical data provided covers the period from January 2014 to September
2020, a period that coincides with strong economic growth in China
except the year of 2020 amid coronavirus outbreak. Accordingly,
Moody's has increased the mean default rate over those calculated with
the historical pool performance data in the base-case analysis.
MAIN MODEL ASSUMPTIONS
Moody's assumed a mean default rate of 1.2% and a portfolio
credit enhancement of 7.5% for the securitized pool.
A recovery rate of 15% is used as the other main input for Moody's
cash flow model ABSROM. These assumptions are made according to
Moody's analysis of the characteristics of such pools, their historical
performance, and the current view of China's social and macroeconomic
conditions and risks as reflected in its country ceiling of Aaa.
RATINGS METHODOLOGY
The principal methodology used in these ratings was Moody's Global Approach
to Rating Auto Loan- and Lease-Backed ABS published in December
2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1202515.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Factors that would lead to an upgrade or downgrade of the ratings:
Factors that may cause an upgrade of the ratings of the Class A Notes
include a decrease in financial disruption risk in the transaction.
Factors that may cause an upgrade of the ratings of the Class B Notes
include a significant better-than-expected performance of
the pool.
Factors that may cause a downgrade of the ratings include: (1) an
increase in non-diversifiable country risk in China; (2) an
increase in financial disruption risk, (3) a decline in the overall
performance of the pool; (4) a significant deterioration in the credit
profile of the originator or its parent companies and the absence of the
implementation of any mitigating actions for the transaction, and
(5) a deterioration in the credit quality of the transaction counterparties.
The performance expectations for a given variable indicate Moody's forward-looking
view of the likely range of performance over the medium term. Performance
that falls outside the given range may indicate that the collateral's
credit quality is stronger or weaker than what Moody's had previously
anticipated.
THE COMPANY
SAIC-GMAC is 55% owned by SAIC Motor Corporation Limited
(SAIC) and 45% owned by General Motors Company (GM, Baa3,
negative). It is the first auto finance company established in
China. It was established in August 2004 and is licensed under
the supervision of the China Banking and Insurance Regulatory Commission
(CBIRC). SAIC-GMAC has both a retail and wholesale business.
The retail business provides auto loans to car purchasers of a number
of brands, including GM and non-GM brands. The loans
are originated through its dealership network across China.
The issuer is a newly established special purpose trust incorporated in
the China.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
Moody's took into account one or more third party due diligence
assessment(s) regarding the underlying assets or financial instruments
(the "Due Diligence Assessment(s)") in this credit rating
action and used the Due Diligence Assessment(s) in preparing the ratings.
This had a neutral impact on the ratings.
The Due Diligence Assessment(s) referenced herein were prepared and produced
solely by parties other than Moody's. While Moody's
uses Due Diligence Assessment(s) only to the extent that Moody's
believes them to be reliable for purposes of the intended use, Moody's
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express or implied, as to the accuracy, timeliness,
completeness, merchantability or fitness for any particular purpose
of the Due Diligence Assessment(s).
The analysis includes an assessment of collateral characteristics and
performance to determine the expected collateral loss or a range of expected
collateral losses or cash flows to the rated instruments. As a
second step, Moody's estimates expected collateral losses or cash
flows using a quantitative tool that takes into account credit enhancement,
loss allocation and other structural features, to derive the expected
loss for each rated instrument.
Moody's quantitative analysis entails an evaluation of scenarios
that stress factors contributing to sensitivity of ratings and take into
account the likelihood of severe collateral losses or impaired cash flows.
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Cecilia Chen
Analyst
Structured Finance Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
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China (Hong Kong S.A.R.)
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Jerome Cheng
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